Recruitment Agency vs. Employer of Record: 5 Top Differences

Recruitment Agency vs. Employer of Record: 5 Top Differences

Recruitment Agency vs. Employer of Record: 5 Top Differences

December 5, 2023

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Key Takeaways

  1. There are a lot of potential challenges and problems associated with employment during a period of expansion, especially in an international context
  2. An Employer of Record is a type of outsourcing service provider that takes on the legal responsibility of being the employer for a company’s employees
  3. A Recruitment agency specializes in a specific element of the employment relationship. They are tasked with finding and sourcing candidates for open positions within client organizations
Summary

 

During periods of growth, HR managers are faced with the critical decision of choosing the right partners to build and sustain a robust workforce. Especially in cases of international expansion, there can be big questions about how to find workers who will add the right skills without causing a significant increase in compliance complications. Often, companies are faced with the choice between a recruitment agency vs Employer of Record (EOR), each of which offers a unique solution to the problem.

However, while both contribute to the hiring process, they each play distinct roles that may suit some better than others. In this article, we will look at the functions, pros, and potential cons of each. By highlighting the top differences between EOR and staffing agencies, you can see which will best suit your needs.

 

Why Do Companies Outsource Their Hiring or Employment Needs?

 

There are a lot of potential challenges and problems associated with employment during a period of expansion, especially in an international context. Simply hiring the right people can be difficult if you aren’t familiar with the market, and minor problems can cause large delays of weeks or even months on average, according to Glassdoor.

Even then, once you’ve found the right person, it can be tough to tackle compliance assurance. Even opening the company necessary to employ workers overseas legally can put a huge strain on a project’s deadlines or overheads.

That’s why many companies turn to the services of third parties, like recruitment agencies or EORs, to take the guesswork out of the equation and partner with specialist professionals who can streamline these processes.

A global EOR or recruitment agency can offer the proper support and services needed to overcome the unique challenges of a new market, all while avoiding the company bloat or delay that comes with international expansion.

 

What Does an EOR, or Employer of Record Do?

 

An Employer of Record is a type of outsourcing service provider that takes on the legal responsibility of being the employer for a company’s employees, often abroad. This role includes many or all of the HR functions involved, such as managing payroll, benefits, taxes, and compliance with local labor laws.

Essentially, by doing this, the EOR becomes the official employer for workers in a place where the hiring company may not have a legal entity. Instead, because handling the administrative tasks of opening a new company overseas can be particularly difficult, an EOR helps to cut down on costs and time while the client company maintains control over day-to-day work and project management.

 

What Does a Recruitment Agency Do?

 

A Recruitment agency, sometimes called a staffing agency, specializes in a specific element of the employment relationship. They are tasked with finding and sourcing candidates for open positions within client organizations. This can be in the same country as their client company or internationally.

While their primary focus is on the initial stages of the hiring process, ensuring long-term retention is key. The best recruitment agencies do more than simply carry out a search. They have experts helping companies find the best talent, from identifying suitable candidates and conducting interviews to presenting a shortlist of top choices and helping with onboarding.

The term staffing agency typically refers to those companies that provide short-term or temporary hires on a project-by-project basis. In this case, the staffing agency acts as a middleman between the company and potential hires.

In either case, once a candidate is hired, they become an employee of the client company, although the agency may help with HR elements, including onboarding. Here, an international recruitment agency can use its experience and knowledge of local best practices to help a company integrate its working culture with that of its target market.

 

The Pros and Cons of Using an Employer of Record

 

EOR Pros

 

Global Expansion

EORs facilitate simpler and quicker international expansion by managing legal and compliance issues in various countries. Using global expansion advisors’ expertise helps avoid much of the hassles and delays of expansion, allowing you to grow without the typically associated overheads.

 

Risk Mitigation

A global Employer of Record handles all your legal and compliance matters, reducing the risk of penalties or legal issues. By handing these tasks over to an EOR professional staff of HR specialists, you also reduce the hours your staff and management spend on these day-to-day problems.

 

Time and Resource Savings

EORs have the local support and networks needed to find the best path for streamlining and perfecting your expansion plan. This lets you focus on the core business functions that matter most to your profitability, employee satisfaction, and overall success in a new market.

 

EOR Cons

 

Cost

Partnering with an EOR requires a single monthly fee that takes care of all the required HR functions during expansion. While this may be profitable for SMEs, it may not meet the long-term plans of larger companies that might prefer to use an EOR as a temporary solution while opening a new legal entity in a target market.

 

Limited Control

While administrative tasks are handled, companies working with an EOR have limited control over certain HR functions. This doesn’t affect day-to-day functioning, but a company that hires an EOR should be sure about how easily their payroll functions will integrate with existing in-house systems.

 

The Pros and Cons of Using a Recruitment Agency

 

Recruitment Agency Pros

 

Time Savings

Experienced recruitment agencies can accelerate the hiring process by weeks or even months by taking care of laborious tasks and presenting you with only qualified pre-screened candidates. Knowing the right places to find good candidates abroad can often be a process of trial and error, with a recruitment agency able to take out much of the guesswork.

 

Expertise

A recruitment agency employs specialists in many industries and markets, using professional tools and systems to streamline the process. They bring industry-specific knowledge and expertise to identify the right talent to suit your needs. The right recruitment agency will also take the time to get to know your company structure and values, ensuring they find someone who will be engaged and reduce retention worries.

 

Flexibility

Companies can engage recruitment agencies in a way that suits their needs. While hiring more HR staff means taking on full-time workers no matter your long-term needs, you can partner with a recruitment agency on a project-by-project basis. This helps lower overheads and streamline your structure to avoid unnecessary company bloat.

 

Recruitment Agency Cons

 

Limited Long-Term Relationship

Staffing Agencies focus on the recruitment phase and may not be able to provide ongoing HR functions except in special cases.

 

Costs

The direct costs of using a Recruitment Agency for a single project can be higher than expected in some places unless compared to the indirect costs of employing additional global hiring managers permanently.

 

The Top 5 Differences between EOR and Recruitment Agency

 

Employment Relationship

 

EOR – Uses a local company entity to manage the full employment relationship, from onboarding to termination, on your behalf.

Recruitment Agency – Focuses on the hiring process unless they offer additional services. Here, the employment relationship is established directly with the client.

 

Legal Responsibilities

 

EOR – Assumes legal responsibility as the employer of record in a specific place.

Recruitment Agency – Becomes an intermediary in the hiring process. Here, legal responsibility for employing potential candidates lies with the client.

 

Scope of Services

 

EOR – A comprehensive suite of HR services, including payroll, benefits, and compliance.

Recruitment Agency – Concentrates only on the recruitment process, including job posting, headhunting, screening qualified candidates, selecting, interviewing, shortlisting, and contract formation.

 

Control Over Employees

 

EOR – Takes control over administrative support systems while the client maintains control over day-to-day work and management.

Recruitment Agency – Clients have total control over employees once hired.

 

Global vs. Local Focus

 

EOR – The focus on local or global employment depends on the EOR. These services are more likely to be offered on a global scale, especially when assisting with international expansions.

Recruitment Agency – Again, this depends on the recruitment Agency. Many agencies focus on local or regional talent acquisition.